World Bank President Paul Wolfowitz speaks at a news conference at the International Monetary Fund headquarters building in Washington April 12, 2007. Wolfowitz said on Thursday he made "a mistake for which I am sorry" over his handling of the promotion and pay increase of a staff member, Shaha Riza, whom he is dating. REUTERS/Yuri Gripas (UNITED STATES) 0 less

World Bank President Paul Wolfowitz speaks at a news conference at the International Monetary Fund headquarters building in Washington April 12, 2007. Wolfowitz said on Thursday he made "a mistake for which I ... more

Photo: YURI GRIPAS

Photo: YURI GRIPAS

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World Bank President Paul Wolfowitz speaks at a news conference at the International Monetary Fund headquarters building in Washington April 12, 2007. Wolfowitz said on Thursday he made "a mistake for which I am sorry" over his handling of the promotion and pay increase of a staff member, Shaha Riza, whom he is dating. REUTERS/Yuri Gripas (UNITED STATES) 0 less

World Bank President Paul Wolfowitz speaks at a news conference at the International Monetary Fund headquarters building in Washington April 12, 2007. Wolfowitz said on Thursday he made "a mistake for which I ... more

2007-04-20 04:00:00 PDT Washington -- World Bank officials say a rift between employees and embattled bank President Paul Wolfowitz had become a major distraction from their work, with some employees wearing blue ribbons in a display of defiance against his leadership.

"People feel paralyzed," said one bank official, who like others spoke on the condition of anonymity because they were divulging proceedings that were not supposed to be made public. "No one is doing any work at all. This genie can never go back to the bottle."

As the institution's executive board met, bank officials said a separate review was being conducted by the board's vice presidents, who oversee specific countries, regions and subject matters, and who were polling their own staffs on Wolfowitz. The overwhelming sentiment, officials said, was that he should step down.

Wolfowitz is under fire for transferring and arranging a large raise for Shaha Ali Riza, his girlfriend, when he joined the bank in 2005.

Another report by the Pentagon's inspector general found that while he served as deputy secretary of defense, he personally recommended that Riza be awarded a contract for travel to Iraq in 2003 to advise on setting up a new government.

The inquiry, as described by a senior Pentagon official, concluded there was no wrongdoing in Wolfowitz's role in the hiring of Riza by Science Applications International Corp., a Pentagon contractor, because Riza had the expertise required to advise on the role of women in Islamic countries.

Wolfowitz's office said it could not provide a comment on the latest disclosure. Riza's lawyer, Victoria Toensing, did not respond to a request for a comment.

In another sign of crumbling support, bank officials and others said that a consensus had emerged among European officials involved with the bank that Wolfowitz had lost his ability to lead the institution, not so much because of the matter with Riza but because of other policy disputes over the last two years.

The meeting of the bank's executive board was called by Eckhardt Deutscher of Germany. There was no sign of what the board would do, but Deutscher gave a speech to a German foundation offering a strong-though-oblique criticism of Wolfowitz.

"The World Bank needs a strong leadership with compassion, integrity and vision," Deutscher said Thursday in the speech to the Friedrich Naumann Foundation. "The governance structures need a fundamental reform. And lastly, the World Bank needs credibility, credibility, credibility."